A tough real estate market sometimes means homeowners need to go to extraordinary lengths in order to sell their homes. Foreclosures, falling home values, and picky buyers are making it difficult for some people to sell unless they choose to provide what some home shoppers really want, namely, owner financing, which is also called seller financing.
Seller financing means that you play the banker, holding the note for the home loan so that you can sell your home to a qualified buyer. Certainly this is not a path for everyone, but it can be one worth exploring if you absolutely must sell.
Instructions
1. Find a qualified buyer. As a homeowner, you may not have considered offering a mortgage to a prospective buyer. Most people who are selling their homes want to be done with the deal once a buyer has signed the contract to purchase the home and close on it.
Seller financing is usually not a subject brought up with a real estate agent for the simple reason most agents do not think to ask. But it can prove to be a secret weapon known only by you and your agent, one that can be brought out if the buyer cannot get financing on their own or if by offering owner financing that could clinch the deal. Speak with a tax attorney to see how this kind of contract would work and what risks are involved.
2. Secure a down payment. Have your prospective buyer present earnest money to demonstrate their interest in your home. If no money is tendered, consider that as a sign that the buyer is not serious about following through with the deal. In this case you can save yourself time and money by ending the deal immediately. If earnest money is offered, then secure a down payment with plans to hold the note on the balance of the funds due.
3. Qualify a buyer. Once a buyer has expressed interest in owner financing, then how you handle this is up to you. You are not a mortgage broker, but you may want to employ a similar approach when qualifying a buyer. After all, you have a lot to lose if the mortgage is not paid.
Work with a real estate agent to determine if the buyer is qualified to buy your home. You will need to obtain your buyer's permission to secure copies of their credit reports and their credit scores, something your agent can do on your behalf. Have your agent work for his commission. Enlist him to help out in other areas, including getting copies of the prospective buyer's federal tax returns, pay stubs, banking statements, and other documentation normally required by lenders. You may need to work with an accountant as well to help gauge your buyer's financial strength and ability to purchase your home.
4. Draft a purchase agreement. At this point if your buyer is qualified to buy your home, has put down a deposit, and has agreed to a certain price, then you are ready to work with your attorney to draft a purchase agreement. That agreement will look a lot like an agreement offered by a mortgage company, but your attorney may include certain clauses in the contract which will allow you to gain possession of the home quickly in event of default.
Keep in mind that these provisions are subject to state law which means that if foreclosure action needs to be taken by you, there are several steps you must follow before you can get your home back. The buyer should have his own legal representation, an attorney who will work with your attorney to tweak the final contract.
5. Close the deal. Once all of the provisions of the purchase agreement have been satisfied including fees paid, down payment secured, and other matters settled, then close the deal with both attorneys present. Your home has been sold. You are now a mortgage holder.
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